Closing Markets Summary

Dow Jones

Stocks in the US closed higher on Wednesday after Federal Reserve Chairwoman Janet Yellen emphasized the central bank’s gradual approach to normalizing monetary policy and expressed optimism about the economy in congressional testimony. Yellen’s remarks come as other central bankers have been expressing a desire to taper easy-money policies that have been in place in the aftermath of the 2008-’09 financial crisis. A so-called more hawkish tilt by global central bankers also had led some to believe that the Fed might be encouraged to ramp up its pace of rate increases despite sluggish inflation. Yellen said “the evolution of the economy will warrant gradual increases in the federal-funds rate over time to achieve and maintain maximum employment and stable prices.” The yield on the 10-year Treasury note fell 4 basis points to 2.319% as bond prices, which move inversely to yields, rose. Companies that featured included NRG Energy Inc. which soared more than 29% after the company launched transformation plan to cut costs, slash debt and divest assets. Snap Inc. closed down 1.5%, adding to a 9% fall on Tuesday, when it fell further below its initial-public-offering price. Shares of PayPal Holdings Inc. and Square Inc. finished higher after one analyst suggested PayPal should acquire Square. PayPal shares rose 3.3%, while Square shares advanced 3%. United Continental Holdings Inc. gained 4.7% after investment firms raised their price targets on the airline operator. Energy companies made gains as they tracked the oil price rise, Exxon Mobil Corp. rose 0.5% and Chevron Corp. rose 0.8%. Fastenal Co. closed down 2%, after trading higher earlier in the session following a well-received earnings report. The Dow Jones closed up 123.07 points at 21,532.14, a new closing record. The S&P 500 closed up 17.72 points at 2,443.25. The Nasdaq Composite closed up 67.87 points at 6,261.17.

Europe

European equity markets closed higher on Wednesday, rallying the most since April after US Federal Reserve Chairwoman Janet Yellen said interest rates don’t have to rise all that much further. A rally in oil stocks and a well-received trading update from Burberry also helped to boost investor sentiment. The Pan-European Stoxx Europe 600 index rose 1.5% to close at 384.90, marking its highest close in two weeks and its biggest one-day percentage gain since mid April. The pan-European benchmark moved to intraday highs after the release of the prepared congressional testimony by the Fed’s Yellen. She said interest rate increases will be gradual, but that “the federal-funds rate would not have to rise all that much further to get to a neutral policy stance.” US stocks also rose after the comments, with the Dow Jones Industrial Average hitting a record intraday high. Data in the Eurozone showed that industrial output for the area rose 1.3% in May, the fastest annual pace in more than five years. Companies that featured included Burberry Group PLC which rose 3.2% after the luxury retailer reported higher first-quarter comparable sales and underlying revenue, other luxury goods companies rose, with LVMH Moët Hennessy Louis Vuitton SE up 0.9% and Gucci-owner Kering SA up 2.4%. DNB ASA rose 5.7% after the Norwegian bank posted second-quarter earnings that easily beat forecasts. Oil companies were higher along with oil prices after the US Energy Information Administration reported that domestic stockpiles fell 7.6 million barrels last week. BP PLC rose 1.9%, Repsol rose 1% and Eni SpA rose 1.7%. On regional markets the CAC rose 81.53 points to close at 5,222.13, the DAX closed up 192.93 points at 12,629.95 and the IBEX closed up 111.30 points at 10,560.40.

FTSE

The FTSE closed solidly higher on Wednesday and by the largest percentage gain since April after Federal Reserve Chairwoman Janet Yellen suggested interest rates won’t need to rise much further to put monetary policy on a neutral footing. A gain for luxury-goods maker Burberry Group PLC also contributed to the push higher on the FTSE. Blue-chips soared alongside stocks on Wall Street after the release of prepared text from Yellen’s testimony before lawmakers on Capitol Hill. In it, she said interest rate increases will be gradual and that “the federal-funds rate would not have to rise all that much further to get to a neutral policy stance.” Sterling moved to intraday highs following the UK government’s latest jobs report. The unemployment rate fell to 4.5% in the March-May period, the lowest since 1975. Weekly wages excluding bonuses rose by a more-than-expected 2%, but wages adjusted for inflation declined. The Pound hit an intraday high of $1.2908 after the jobs report, up from $1.2845 late Tuesday in New York. Companies that featured included Burberry which rose 3.2% after the high-end apparel and accessories maker said it’s on track to reach its cost savings targets and that first-quarter comparable sales and underlying revenue climbed. Retail revenue on an underlying basis rose 3% to £478 million. Oil and gas shares moved higher as oil prices rallied after a weekly supply report from the US Energy Information Administration showed 7.6 million barrels draw in stockpiles last week. BP PLC rose 1.9% and Royal Dutch Shell PLC rose 1.8%. Barratt Developments PLC rose 0.9% in volatile trade that had seen the shares fall after rising as much as 2.2%. The home builder said fiscal 2017 pretax profit is expected to rise to a more-than-expected £765 million as it sold more expensive homes. Micro Focus International PLC fell 8.1% after reporting lower revenue and net profit. Kingfisher PLC fell 2.8% after UBS downgraded its rating on the DIY retailer to sell from hold, as well as its price target. The FTSE closed up 87.17 points at 7,416.93.

Economic News Expected Today

USA

Type

Period

Forecast

Previous

Importance

Continuing Jobless Claims

July

1,950K

1,956K

Low

Initial Jobless Claims

July

245K

248K

Medium

PPI

June

-0.1% m/m; 1.9% y/y

0.0% m/m; 2.4% y/y

High

Core PPI

June

0.2% m/m; 2.0% y/y

0.3% m/m; 2.1% y/y

Medium

Bloomberg Consumer Confidence

July

48.5

Low

Fed Chair Yellen Testifies

July

High

Chicago Fed President Evans Speaks

July

Medium

FOMC Member Brainard Speaks

July

Medium

Federal Budget Balance

June

-$35.0B

-$88.0B

Medium

Economic News Expected Today

Eurozone

Type

Period

Forecast

Previous

Importance

CPI (Germany)

June

0.2% m/m; 1.6% y/y

0.2% m/m; 1.6% y/y

Medium

CPI (France)

June

0.0% m/m

0.0% m/m

Medium

CPI (Spain)

June

0.0% m/m

0.0% m/m

Medium

Economic News Expected Today

United Kingdom

Type

Period

Forecast

Previous

Importance

RICS House Price Balance

June

15%

17%

Medium

Other Global Economic Data Expected

Type

Period

Forecast

Previous

Importance

Trade Balance (China)

June

$42.44B

$40.81B

High

PPI (Switzerland)

June

0.0% m/m; 0.0% y/y

-0.3% m/m; 0.1% y/y

Medium

New House Price Index (Canada)

May

0.3% m/m

0.8% m/m

Medium

Economic News Round Up

US mortgage application activity recorded its steepest drop since December as interest rates on 30-year fixed-rate home loans climbed to their highest level in nearly two months. The Mortgage Bankers Association reported that its seasonally adjusted index for mortgage applications fell to 391.9 in the week ended July 7, down 7.4 percent from the prior week which marked its biggest decline since a 12.1 percent fall in the Dec. 23 week.

Industrial output in the Eurozone rose by more than forecast in May, aided by a spike in the production of capital goods and consumer durables. The European statistics office Eurostat reported that compared to the previous month, industrial production increased by 1.3 percent for a 4.0 percent annual increase. This was ahead of forecasts for a rise of 1.1precent and 3.6 percent annual rise.

The jobless rate in the UK decreased in May and real wages continued to ease increasing the pressure on British families to make it to the end of the month given the gap with inflation. The Office for National Statistics reported that the rate of unemployment fell to 4.5% in May, forecasts were for the rate to remain unchanged at a four-decade low of 4.6%. The claimant count increased by a seasonally adjusted 6,000 in June, compared to forecasts for a gain of 10,000 people and following a rise of 7,500 a month earlier, whose figure was revised from a previously reported increase of 7,300. The average earnings index, including bonuses, rose by a seasonally adjusted 1.8% in the three months to May, in line with forecasts but below the previous month’s gain of 2.1%. The squeeze on real wages continues in the UK with inflation having clocked in at 2.9% in May. Excluding bonuses, wages rose by 2.0% in the three months to May, compared to forecasts for a 1.9% gain and April’s reading of 1.8% that was increased from an initial 1.7% advance.

The Bank of Canada raised interest rates for the first time in nearly seven years, making it the first major central bank to follow the Federal Reserve in tightening monetary policy. The Bank of Canada raised the cash rate to 0.75% in a widely forecast decision. It also raised the bank rate to 1% and the deposit rate to 0.5%. The rate increase was the first under Governor Stephen Poloz, who took over at the helm of the bank in 2013 after his predecessor Mark Carney went to the Bank of England.

Forex Round Up

The Dollar was slightly higher against a basket of the other major currencies on Wednesday after Federal Reserve Chair Janet Yellen reiterated that rate hikes would gradual and the Canadian dollar rallied after an interest rate hike by the country’s central bank. In prepared testimony to the House Financial Services committee, Yellen said the Fed is likely to unwind its stimulus despite low inflation. Yellen gave no clear indication of whether the Fed would raise interest rates a third time this year. The Fed chair also emphasized that inflation is below target and noted that it is a particular “uncertainty” that could affect monetary policy.

The USD/JPY was down 0.64% to ¥113.20 following the remarks, well below the four-month high of ¥114.49 set on Tuesday. The Dollar came under pressure against the Yen overnight amid fresh concerns over the Trump administration’s alleged connection with Russia.

The Euro was lower against the Dollar with the EUR/USD down 0.51% at $1.1408 after rising to a 14-month peak of $1.1489 overnight. The Canadian dollar moved up to near one-year highs against Dollar, with USD/CAD last at CAD$1.2824 after the Bank of Canada hiked interest rates to 0.75%. The Pound recovered from two-week lows, with GBP/USD up 0.3% to $1.2883 after the latest UK jobs report showed that the jobless rate fell to a 42-year low in the three months to May, but pay growth continued to lag behind inflation. The Pound weakened in early trade after Bank of England Deputy Governor Ben Broadbent said in an interview published on Wednesday that he is not ready to raise interest rates just yet. The US Dollar Index was up 0.14% at 95.62.

Commodity Round Up

Gold ended higher on Wednesday supported by US political uncertainty fuelled by Donald Trump Jr.’s release of email exchanges linked to a meeting with a Russian lawyer last year. Investors also digested Congressional testimony from Federal Reserve Chairwoman Janet Yellen, who reiterated the central bank’s “gradual” approach to raising interest rates. August gold rose $4.40 to settle at $1,219.10 per ounce. September silver rose $0.155 to $15.90 per ounce.

Oil prices settled higher on Wednesday as US government data confirmed a sharp decline in domestic crude supplies for a second week in a row. However, prices ended off the session’s best levels, as rising production in the US and elsewhere continue to prevent the market from reaching a lasting balance between supply and demand. The US Energy Information Administration reported that domestic crude supplies dropped 7.6 million barrels for the week ended July 7th. A much larger drop than had been forecasts of 2.6 million barrels. August West Texas Intermediate crude rose $0.45 to settle at $45.49 per barrel, having been as high as $46.17. September Brent crude rose $0.22 to $47.74 per barrel.

The MarketsWorld Overview

Producer prices in the US today will serve as a warm up to consumer prices data due on Friday and have an impact on future CPI. In May, prices remained flat, as expected and core PPI rose by 0.3%, ahead of forecasts. PPI is forecast to stay flat while Core PPI is forecast to rise by 0.2%.

Monitor the Dollar for Binary Options trading.

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